COVER STORY AMERICAN GAS NOVEMBER 2016

Transcription

1 COVER STORY SEA CH 20 AMERICAN GAS NOVEMBER 2016

2 From cruise ships to containerships, as the world continues to move toward an international emission standard, liquefied natural gas is asserting its role as a marine transportation fuel. BY PAT OLSEN On a clear night last spring, the skies over the Port of Hamburg in Germany were lit by a brilliant fireworks display for the christening of AIDA Cruises new dual-fuel cruise ship, the AIDAprima. The ship treated spectators on the shore to a spectacular rolling light show spanning the decks from fore to aft. Celebration aside, the exhibition also showcased the opportunity for liquefied natural gas in yet another segment of the marine industry. We re the first cruise line in the world to supply a ship with low-emission LNG for operation in port. I am convinced that our path is also a clear signal to the ports and LNG producers to invest in the necessary infrastructure, said Felix Eichhorn, president of AIDA Cruises. Eichhorn s comments echo the sea change that s being felt throughout the industry. Just six years ago, the marine industry was the last large emission source that remained unregulated. Since then, International Maritime Organization mandates have led ship owners to develop new solutions. While LNG remains a relatively new fuel source for ocean-going vessels, marked growth in the number of LNG-fueled ships signals the beginning of a new era, even as it calls out a challenge for the marine transportation industry and LNG suppliers. ANGE ILLUSTRATION BY NEIL WEBB NOVEMBER 2016 AMERICAN GAS 21

3 LNG-fueled cruise ship AIDAprima launched in Germany earlier this year. New Markets Today, more cruise line owners are buying into LNG worldwide. In addition to Germany s AIDAprima launch this year, in the United States, Carnival has ordered four dual-fuel cruise ships from Meyer Werft, a German shipyard. If one cruise line executive s prediction proves true, 80 percent of cruise ships will be LNG-powered by Ferry owners are also jumping on board. In Canada last summer, the Société des traversiers du Québec launched the first LNG-powered ferry, which was built in the Italian Fincantieri shipyard. John Hatley, Americas vice president of Marine Solutions for Wartsila North America, confirmed that there has been an increase in orders for LNG-powered ferries: Wartsila alone has contracts for several new ferry buildings: three being built in Poland, two in Turkey, two in Canada, the one recently delivered from Italy and two more soon to be converted to LNG fuel. In North America, deliveries of LNG-fueled vessels kicked off with offshore leader Harvey Gulf International, whose Harvey Energy entered into service in February 2015, Hatley said. Six offshore vessels powered by LNG fuel are now planned for the company. Other industry segments are moving to LNG this year as well, and infrastructure is being developed to support them. In the Caribbean, Crowley Puerto Rico Services received a $21 million terminal construction contract in May to upgrade the San Juan terminal in preparation for the late 2017 arrival of Crowley s two new LNG-powered ConRo ships, some of the world s first LNG-powered combination container and Roll-On/ Roll-Off ships. In Norway, Stolt-Nielsen has announced global LNG distribution projects that will involve building regional terminals served by a fleet of ships to support customers far from conventional pipeline gas. In Central America, the expansion of the Panama Canal had a major impact on the maritime industry this year, boosting LNG trade by lowering costs and speeding transport. In July, Royal Dutch Shell s Maran Gas Apollonia tanker, loaded with a cargo of U.S. LNG from Cheniereoperated Sabine Pass, became the first standard-size LNG vessel to motor through the canal. Bloomberg recently reported that 90 percent of the world s fleet of tankers carrying LNG exports will now have access to this shortcut to Asia, which bodes well for U.S. gas companies exporting LNG to other countries. A Climate Resolution? Meanwhile, the Paris Agreement during the U.N. Climate Change Conference in December 2015 marked the first universal, legally binding global climate deal, with 195 countries agreeing on a global action plan to limit global warming to well below 2 degrees Celsius. The treaty was ratified in mid-october and went into effect on Nov. 4. PHOTO COURTESY OF AIDA CRUISES Although international shipping was not included in this agreement, amid the optimistic predictions for growth, all eyes are on the International Maritime Organization to see whether the sulfur emission standard for emission control areas will be dropped from 3.5 percent to 0.5 percent in 2020, or deferred until At press time, the organization s review is nearing completion, according to an IMO spokesperson, with the IMO Marine Protection Committee already agreeing in principle to make a decision at its session at the end of October. Should the standard be deferred, there might be a slowdown by those parties planning on switching to LNG. But if it goes through, vessels subject to the emission regulations laid out in MARPOL Annex VI, the IMO s pollution regulations, have only three choices: 1) use low-sulfur diesel fuel; 2) use abatement technologies such as exhaust gas treatment systems (usually scrubbers); or 3) use alternative fuels such as LNG. The IMO has not offered an opinion but has said that certainly LNG has environmental advantages in terms of sulfur emissions. For Continued Growth, Invest Growth in the use of LNG may be slower than some of us wish, but it s inevitable. That s according to John Graykowski, founder and principal of Maritime Consultants, who was deputy maritime administrator in the U.S. Department of Transportation during the Clinton administration and later was acting maritime administrator. Still, Graykowski believes LNG s continued upward momentum at least in the United States is also dependent on how willing the federal government is to support it. Despite the progress by Harvey Gulf, the port at Jacksonville and Tacoma (in which the gas suppliers reached an agreement with the users that the latter would guarantee to purchase LNG for a number of years), a national strategy for developing LNG as a fuel source remains to be developed. If the United States is serious about developing a plan and moving toward energy independence, there needs to be a national statement to that effect by Congress and the president, he said. Graykowski suggests a program similar to one Europe created to incentivize the industry to convert ships to natural gas 22 AMERICAN GAS NOVEMBER 2016

4 and help build terminals for LNG. Europe has spent approximately $150 million to date to develop LNG infrastructure, he said. Before Brexit, all 28 member nations of the European Union unanimously agreed to a formal policy that said there will be LNG bunkering capability in all deep-sea ports in Europe and all inland ports on the continent by Money flowed to support and achieve that policy goal. By the end of this year, several of Europe s major ports, such as at Rotterdam, will have bunkering capability. Graykowski recommends not only that policymakers become more involved, but also that gas suppliers have an opportunity to expand demand and find new markets for gas by taking more investment risks. Government involvement could mitigate some of that risk with loan guarantees or other financing. In a perfect world, said Graykowski, if gas suppliers said they were investing in LNG, it would get the attention of the players in the port because the implied message is, Either you come with me now and get the best possible LNG price today, or get in line and pay a higher price later. But the point, Mr. Marine Operator, is that you re going to LNG. That s the essential message here. If the global community goes to 0.5 [percent for the sulfur emission standard], it s hard to escape the positive attributes of LNG. That would be my statement as CEO of a gas company: You re with me now or you re with me later, but you re going to LNG. But in today s economic climate, there s little appetite in many quarters public or private for the government to sponsor something like this, he said, with possible downward pressure in LNG prices because of competition from other fuels and the abundance of LNG supplies. Still, Graykowski notes how positive that abundance of LNG is, musing, It used to be that ship owners never gave a thought to whether fuel was going to be available. They just pulled into port and there was always a bunkering operation they could buy fuel from. With LNG, their first and frequently recurring question is, If I build a ship and invest $150 or $200 million in a new vessel, will LNG be available? Will the fuel be there in the port? all the more reason for gas companies to continue to show they re serious about LNG. u With a 100+ year supply and low and stable pricing, natural gas represents a compelling investment for decades to come. Invest in the Future of Energy, INVEST IN NATURAL GAS Since 1989, the Hennessy Gas Utility Fund has provided investors an opportunity to participate in the growth of the natural gas industry. Comprised entirely of shares of all publicly traded members of the American Gas Association, the Fund offers a simple and convenient way to invest in companies poised to benefit from the increasing demand for natural gas and is the only product of its kind offered to the investing public. To learn more about how the Hennessy Gas Utility Fund (ticker: GASFX) could play a meaningful role in your portfolio or your firm s 401(k) offering, please call us at or visit us at hennessyfunds.com. hennessyfunds.com Skip Aylesworth, Portfolio Manager Investors should consider the investment objectives, risks, charges and expenses carefully before investing. This and other important information can be found in the Fund s statutory and summary prospectuses. To obtain a free prospectus, please call or visit hennessyfunds.com. Please read the prospectus carefully before investing. Mutual fund investing involves risk; Principal loss is possible. A non-diversified fund, one that may concentrate its assets in fewer holdings than a diversified fund, is more exposed to individual stock volatility than a diversified fund. Investments in foreign securities may involve political, economic and currency risks, greater volatility and differences in accounting methods. Investments are focused in the natural gas distribution and transmission industry; sector funds may be subject to a higher degree of market risk. The Hennessy Funds are distributed by Quasar Distributors, LLC. 10/16 NOVEMBER 2016 AMERICAN GAS 23

5 MARINE LNG ACTIVITY GERMANY SPAIN VESSEL: Shipping management company Wessels Reederei GmbH will be the first to convert a containership to LNG in 2017, the WES AMELIE; French international classification society Veritas Bureau will class the vessel. VESSEL: Astilleros Gondán has launched the first two of three dual-fuel tugs built in Europe for Norwegian state-owned Statoil. UNITED STATES VESSEL: Carnival Corp. entered into an agreement with Meyer Turku in Finland for two LNG-powered cruise ships for Carnival Cruise Line s 2020 and 2022 fleets. They will be the first LNG cruise ships based in North America. The company also ordered an LNG-powered ship from German company Meyer Werft for delivery in 2020 for P&O Cruises UK. The company recently signed an LNG supplier agreement with Shell for the vessels. ITALY R&D: RINA has established a Gas Center of Excellence in response to the European Union (maritime) master plan and the increased interest in the use of LNG as a fuel. SOURCE: 24 AMERICAN GAS NOVEMBER 2016

6 NORWAY R&D: DNV GL is leading a study on the EU LNG market to determine better opportunities for LNG refueling, specifically for maritime vessels on the Iberian Peninsula; the research is anticipated to be complete in late RUSSIA INFRASTRUCTURE: Gazprom and Mitsui & Co. Ltd. have signed a memorandum of understanding to cooperate in feasibility and marketing studies with regard to the bunkering of marine vessels with LNG in Russia s Far East and the Asia-Pacific region. JAPAN KOREA R&D: The Ministry of Land, Infrastructure, Transport and Tourism established a steering committee to conduct a feasibility study on using LNG for bunkering in the Port of Yokohoma. VESSEL: The agreement for the largest LNG-fueled bulk carrier ever ordered was recently signed between the Hyundai Mipo Dockyard, Ilshin Logistics and steelmaker POSCO. The ship is expected to be complete in AUSTRALIA INFRASTRUCTURE: Fremantle Port off Australia s western coast is the first Australian port to have an LNG bunkering facility. EVOL LNG will provide the fuel. NOVEMBER 2016 AMERICAN GAS 25